Signature Bank (SBNY) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Signature Bank fiscal 2010 first quarter results conference call. (Operator Instructions). This conference is being recorded today, Tuesday, the 27th of April, 2010. I would now like to turn the conference over to Joseph J. DePaolo, President and CEO, and Eric Howell, CFO, Signature Bank. Mr. DePaolo, please go ahead.

All right, thank you, Luke. Good morning and thank you for joining us today for the Signature Bank 2010 first quarter results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.

Thank you, Joe. This conference call and oral statements made from time to time by our representatives contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties.

Forward-looking statements include information concerning our future results, interest rates and the interest rate environment, loan and deposit growth, loan performance, operations, competition, capitalization, new private client team hires, new office openings, the regulatory environment and business strategy.

These statements often include words such as may, believe, expect, anticipate, intend, plan, estimate, or other similar expressions. As you consider forward-looking statements, you should understand that these statements are not guarantees of performance or results.

They involve risks, uncertainties, and assumptions that could cause actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, one, prevailing economic and regulatory conditions, two, changes in interest rates, loan demand, real estate values and competition, which can materially affect origination levels and gain [unintelligible] results in our business, as well as other aspects of our financial performance.

Three, the level of defaults, losses, and prepayments on loans made by us, whether held in portfolio or sold in the whole loan secondary market, which can materially affect charge-off levels and required credit loss reserve levels, and, four, competition for clients, loans, deposits, qualified personnel and desirable office locations.

Additional risks are described in our quarterly and annual report filed with the FDIC. You should keep in mind that any forward-looking statements made by Signature Bank speak only as of the date on which they were made. New risks and uncertainties come up from time to time and we cannot predict these events or how they may affect the Bank.

Signature Bank has no duty to, and does not intend to, update or revise the forward-looking statements after the date on which they are made. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this conference call or elsewhere might not reflect actual results. Now, I'd like to turn the call back to Joe.

Thank you, Susan. I will provide some overview into the quarterly results, and then Eric Howell, our Chief Financial Officer will review the Bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks.

Signature Bank reported another quarter of strong results, as evidenced by our record core deposit growth and record net income, while maintaining strong credit quality. Let's get right into the numbers. I'll start with deposits. Deposits grew 675 million to 7.9 billion, which includes record quarterly core deposit growth of 586 million or 8.6%.

Since the 2009 first quarter, deposits increased 2.06 billion, or 35% for the last 12 months. Also for the quarter, we saw increases of 80 million in short-term escrow deposits and 9 million in broker deposits. Average deposits for the first quarter were 7.64 billion, an increase of 2.16 billion, or 39%, compared with the 5.48 billion reported in the 2009 first quarter.

This is a key deposit metric, which we closely monitor due to fluctuations in short-term escrow deposits. Non-interest bearing deposits of 1.88 billion represented 24% of total deposits. With the exceptional deposit growth, total assets reached seven--I'm sorry, 9.74 billion, up 2.3 billion or 31% since the 2009 first quarter.

Now, onto loans, loans during the 2010 first quarter rose 116 million, or 2.6%, reaching 4.49 billion, which represented 46% of total assets at quarter end. The loan increase in the quarter was primarily driven by growth in commercial real estate and multi-family loans with continued conservative underwriting standards.

Non-performing loans decreased to 0.99% of total loans, and only 0.46% of total assets, or 44.4 million. This compares with 1.07% of total loans, or 46.6 million at year end 2009, and 1.26% of total loans, or 45.1 million for the 2009 first quarter.

The provision for loan losses for the 2010 first quarter was 11.2 million, compared with 11.8 million for the 2009 fourth quarter, and 9.6 million for the 2009 first quarter. Once again, the provision was well in excess of charge-offs. This is now the 10th consecutive quarter where our provision significantly exceeded charge-offs.

The elevated level of provisioning was primarily driven by the growth in the loan portfolio, and provisions for the current economic environment. This provisioning led to a further increase in our allowance for loan losses, which was 1.33% of loans compared with 1.26% in the 2009 fourth quarter.

Additionally, the coverage ratio, or the ratio of allowance for loan losses to non-performing loans improved again to 135%. Net charge-offs for the 2010 first quarter were 6.4 million, or an annualized 59 basis points, compared with 6.4 million, or 61 basis points for the 2009 fourth quarter, and 7.2 million, or 82 basis points for the first quarter of 2009.

During the 2010 first quarter, we saw an increase in our 30- to 89-day past-due loans of 14.8 million to 41.1 million, and a decrease in the 90-day-plus past-due category of 5.4 million to 10.9 million. Although our credit metrics continue to improve, and we see credit as manageable, we remain mindful of the continued uncertainty in the economic environment. Therefore, we continue to prudently build our reserves.

Let's review earnings. Net income for the 2010 first quarter reached a record $22.1 million, or $0.54 diluted earnings per share, an increase of $7.5 million, or 51% from the $14.6 million or $0.41 diluted earnings per share reported in the same period last year.

Net income, excluding the gains on sales and securities, and other than temporary impairment, OTTI, for the quarter was $20.3 million, or $0.49 diluted earnings per share, versus $13.2 million or $0.37 diluted earnings per share for the first quarter of last year.

The increase in net income versus the 2009 first quarter is predominantly attributable to net interest income growth of 37%, fueled by record core deposit growth and continued loan growth. These factors were partially offset by increases in the provision for loan losses and non-interest expenses.

Just to touch upon team expansion for a moment, we recently announced the addition of three teams. One of these teams joined in the 2010 first quarter. The other two teams joined this quarter. We now have 71 teams, headed by 92 group directors, and we continue to evaluate the opportunities to attract new veteran banking professionals. At this point, I'll turn the call over to Eric, and he will review the quarter's financial results in greater detail.

Thank you, Joe, and good morning, everyone. I'll start by reviewing net interest income and margin. Net interest income for the first quarter reached 78.8 million, up 21.2 million or 37%, versus the 2009 first quarter, and an increase of 4%, or 3 million, from the 2009 fourth quarter.

Net interest margin increased 14 basis points in the quarter versus the same period last year, and grew 3 basis points on a linked quarter basis to 3.51%. The linked quarter expansion was mostly due to a 9-basis point decrease in deposit costs.

Look at asset yields and funding costs for a moment. Overall, interest earning asset yields declined 5 basis points this quarter to 4.85%, due to the continued low interest rate environment. In keeping with our conservative investment philosophy, we are selectively deploying cash while maintaining our high-quality, short-duration investment portfolio. As a result, yields on investment securities decreased 22 basis points to 4.35% this quarter versus last quarter.

Turning to our loan portfolio, yields on average commercial loans and commercial mortgages increased 1 basis point to 5.56% this quarter from last quarter, as we continued to selectively identify quality lending opportunities at appropriate pricing.

Now, onto our liabilities, cost of deposits for the quarter further decreased 9 basis points to 1.12%, as we gradually reduced deposit costs given the abnormally low interest rate environment. We continue to employ our relationship-based pricing philosophy to attract new core depositors, which will prove beneficial in a rising rate environment.

Looking at non-interest income and expense, non-interest income for the 2010 first quarter was 11.1 million, an increase of 730,000 versus the 2009 first quarter. The increase was primarily due to an increase in net gains on sales of securities and loans.

This was partially offset by a decrease in commission income and trading income, as well as an increase in write-downs and other-than-temporary impairment of securities. With the announced end of the Fed's Quantitative Easing Program on March 31, 2010, and overall tighter mortgage spreads, we capitalized on the opportunity to sell approximately $290 million in mortgage securities, resulting in gains of $12.7 million.

We expect to deploy the cash from the securities sales into higher yielding investments in the coming months. Conversely, during the first quarter, we recognized OTTI of 9.5 million on securities. Most of the OTTI was on CDO positions, one of which was liquidated upon an event of default, and our class received nothing upon liquidation.

Due to this occurrence, we reviewed the remained of our CDOs more closely for event of default risk, and further wrote down two more CDOs to better reflect the potential for a liquidation risk in those securities. The remainder of the OTTI was on four bank pool trust preferred securities.

Commission income further declined by 576,000, versus the 2009 first quarter, as deposits in off-balance sheet money market funds decreased 549 million, and commissions we earn on off-balance sheet money market accounts continued to be significantly reduced and for some funds even eliminated to maintain positive yields on the funds in this unusually low interest rate environment.

Non-interest expense for the first quarter of 2010 was 39.7 million, versus 34 million for the same period a year ago. The 5.8 million, or 17% increase was primarily due to the addition of new private client banking teams and additional costs relating to FDIC deposit assessment fees and the FDIC deposit guarantee program. Bank's efficiency ratio improved to 44.2% for the 2010 first quarter, compared with 50.1% for the 2009 first quarter, despite higher FDIC assessment fees, as we continued to leverage our operating infrastructure.

Looking at taxes, as we mentioned last quarter, our effective tax rate increased to approximately 43%, as the benefits of a wreath that we had established have been phased out for banks with average assets in excess of $8 billion. We expect our effective tax rate to be approximately 43% for 2010.

And now onto capital, our capital levels remained strong, with a tangible common equity ratio of 8.56%. Tier I risk base of 13.66%, total risk base ratio of 14.62%, and leverage capital ratio of 9.1%, as of March 31, 2010. Our regulatory capital ratios were all well in excess of regulatory requirements and reflect the relatively low-risk profile of the balance sheet. Now I'll turn the call back to Joe. Thank you.

Thanks, Eric. Ten years ago this month we set out with a clearly defined business plan to build a Bank that could accommodate the void we saw unfolding here in the metro New York marketplace, which remains prevalent, catering to privately-owned businesses.

Now, the numbers truly speak for themselves. To summarize the first quarter, we had record core deposit growth, strong loan growth, increased margins, stable credit quality, and record net income. I would say that 2010 is off to a positive start. Now, we are happy to answer any questions you might have. Luke, I'll turn it back to you.

Thank you. We will not being the question-and-answer session. (Operator Instructions). Our first question comes from the line of Steven Alexopoulos with JPMorgan. Please go ahead.

Okay, good morning, guys.

Good morning, Steve.

Hey, Steve, good morning.

Maybe I'll start, looking at the just over 11 million provision in the quarter, I'm curious, how did that come in versus your expectations?

It actually came in right where our expectations were. We see that our credit metrics for Signature Bank are pretty positive at the moment. However, we're still concerned about the uncertainty in the environment. We kind of use the term "murky and cloudy" still in the environment. And when it's clear, we'll provide less. So, you may see a slow down, I use the term "may". You may see a slow down on the speed at which we're building reserves. But, we don't believe it's a time to stop, until we see that the environment is a little bit more clear.

All right, okay. In terms of the unlimited FDIC insurance, do you guys plan on opting into that and extending it?

You mean the Transaction Account Guarantee Program.

Yes.

We have to make a determination by the end of this week, April 30th, and we are currently in it. And we're going to continue to stay in it, as much as it pains me to say that. Our belief is that we still have the too big to fail bank situation. We would've preferred that the FDIC not extend it, because of our capital ratios and the strong balance sheet that we have.

But, because we're currently in the program, we've decided to stay in, again because of the uncertainty. What's the next bomb-shelter drop with Goldman? And that affects, certainly, the environment for Banks. So, therefore, we're staying in it.

Okay. Maybe just one final one for Eric, given the level of the security gains you took in the quarter, do you think basically you're done for the year now with securities gains?

Well, I certainly don't expect that we'll have quite the level we had in the first quarter. But, with a 4-billion-plus securities portfolio that we pretty actively manage, I would expect that we'd still have some gain opportunities. I mean, we've had gains, really, every single quarter since we opened our doors. So, I wouldn't expect that to go away, Steven, but it certainly won't be at the level that we had this quarter.

Okay, but maybe a more traditional run-rate?

It may be even a little bit less than what we saw prior to the first quarter.

Got you. Okay, thanks, guys.

Sure.

Thank you. Our next question comes from the line of Bob Ramsey with FBR Capital Markets. Please go ahead. Mr. Ramsey, your line is open.

Hey, good morning, guys.

Hey, Bob.

Good morning. How are you?

Good morning.

With the securities book, could you talk about what opportunities you're seeing for reinvestment with an end of Quantitative Easing, sort of how security yields look on what you're buying today?

Yes, well, the second quarter really started off well. Unfortunately, then, we had some employment data, Greece and Goldman kind of drove yields down in the short-term. We've been putting on some very well-structured agencies, picking up yields in the low- to mid-four range.

As of late, mostly in the low 4% arena, we would expect that, over time, that'll pick back up. But, so, it started off well, but unfortunately there's been some short-term noise, have brought yields down. But, we expect it'll widen out again, and we'll have better opportunities to invest, Bob.

Okay. And was there much noise in the first quarter from the agency land buyouts, full-term, so your yield on investments?

A little bit. Freddie Mac buyouts cost us approximately $600,000, which is a couple basis points in the margin, and it also led to us having even more cash on-hand. So, we had some reinvestment, yes, that we'll have to--challenges that we'll have to work through. Next quarter we'll have Fannie Mae. That'll mostly be done, from what we understand, in the second quarter. Maybe some of that'll trickle into the third quarter. But, we should be in a better place come third quarter on that.

Okay. And then, in regards to the charge-offs that y'all had this quarter, is most of that still coming out of the C&I Loan book?

Yes. It's predominantly from the C&I Loan book.

Great. And then, I think you guys gave this earlier, and I apologize. I missed it. But, what was the early stage delinquency number?

Thirty- to 89-day past-due was 41 million, up from 26 million. Approximately 8 million of that has already come out of that bucket. It was mostly paperwork-related issues and renewals that just didn't get done in time. So, that was making up the majority of that increase.

Okay, great. Thank you, guys.

You're welcome, Bob. Thanks.

Thanks, Bob.

Thank you. Our next question comes from the line of Matthew Clark with KBW. Please go ahead.

Hey, good morning, guys.

Hey, Matt.

Morning, Matthew.

Can you touch on the incremental changes you may have seen in the pipeline, whether or not things have improved materially or not, and if they have improved what you're seeing now? And if you want to size it up, that'd be great, too.

You're talking about the loan pipeline?

The pipeline, yes, exactly.

Yes. Well, our loan pipeline right now indicates that the net growth for the second quarter would be larger than the growth we had in the first quarter. The growth we had was 116 billion net growth for the first quarter. So, our pipeline right now, although certainly things will be added to it, and some things will come off of it, we're seeing right now that our specific pipeline we have growth greater than what we had in the first quarter.

However, the environment seems to dictate, although we're seeing a little more activity on C&I than we had in the recent past, that there's still a lot of inactivity, not only in the C&I side, but even in the CRE side, we seen that slow down, particularly, not only in the first quarter, but even now, although there's a pipeline. We're seeing both areas having a slow down. Although our expectations are, like I said, is that we'll continue to have loan growth, and the loan growth in the second quarter will be greater than it was in the first quarter.

Last year, we looked at the quarterly growth last year, and our growth in the loan portfolio is actually under 100 million in the first quarter of 2009. And we ended up having over 900 million in loan growth for the year. And so, there's no seasonality here. I'm just giving you a comparison that we still may have some decent loan growth, and that the first quarter is not any indication for the rest of the year.

Okay, great. And then, in terms of charge-offs, they've been fairly stable for the last three quarters. And I don't know if there's a view that maybe asset prices are stabilizing here. Could you argue that charge-offs should remain relatively stable here if that's the case? I'm just curious about your view on asset prices and potential losses.

It's tough with the C&I book that we have. You could get a lumpy quarter. Yes. I don't think we see it meaningfully moving from where we've been charging off last couple quarters. But, it's hard to look out beyond a few more quarters. And it can get choppy at any given time. But, we feel comfortable that we'll be able to manage through the credit environment.

Oh, sure. Okay, thank you.

Thanks, Matt.

Our next question comes from the line of Christopher Nolan with Maxim Group. Please go ahead.

Hi, guys.

Morning, Chris.

Hey, Chris.

Joe, in past conference calls, if my memory serves us correctly, have you indicated a slowing in transaction volumes that you're seeing for New York City commercial real estate. Is that trend extending, from your perspective, these days?

Yes. Well, we have continued to see inactivity on buys and sells. We actually were out there telling some clients that we would be interested in helping them buy discounted paper on very good deals, whereby they would buy discounted paper. They would put up the significant cash. We'd probably do loans for them, at or less than 50% loan-to-value, so they can take advantage of some opportunities. We've put that out there and discussing it with clients, some of our bankers, particularly that handle commercial real estate.

We have not seen much activity, if any, happening there. So, I would say that yes, it continue to be somewhat inactive, although we're ready. We have the powder. We're ready to help some clients take advantage of some of the real estate opportunities.

And in a follow-up to that, in your answer to an earlier question, you indicate that you're seeing in the loan pipeline more active from commercial real estate, but it's still pretty--can you characterize it? Is it more active than 2009 second half or--?

--No. I would say right now it's less activity than it was in any of the past several years--.

--Great. Thanks.

But, yes.

Great, thank you.

Thanks.

Thank you. Our next question comes from the line of Terry McEvoy with Oppenheimer. Please go ahead.

Thanks. Good morning.

Morning, Terry.

Hey, Terry. Good morning.

Just wondering, have you, or would you look at doing any kind of asset or portfolio acquisitions? I think we can all look at your balance sheet and look at what you're earning on securities and look at what you're earning on assets. And is there an opportunity, or do you have an interest in opportunity in maybe picking up some bulk assets to improve the margin in your yield on earning assets?

Well, I have to tell you, we're always being opportunistic, but we have a saying here, particularly on the loan side, is that if we do a loan, we like to have a face with the loan. And just as much as we like to have a face with the deposit, and we avoid really broker deposits. So, for us, unless it really knocks our socks off, unless it really is something that's going to move our yields, it's not something that we would look at. We just think that the economy, when it moves, we're ready.

And we could go back to--when the economy gets better--if you recall, our loan growth in 2008 was significant. And we would certainly love to be at those levels again. And we're certainly weighted out until the economy's back.

And could you just also talk about your outlook for new banking team hires? And then, just kind of expense growth, as well, is it still 20% to 25% type of expense growth going forward?

Yes. Well, on the expense front, I'll hit that one first and let Joe talk about the team hires.

Okay.

We had a pretty good quarter, at 16.9% growth year-over-year. I think we said last quarter we expected to be more in the 18% to 20% range. We just brought on two teams earlier this quarter and one team late in the first quarter. That'll certainly hit the expense. But, fortunately, we put them into existing space and didn't have to build out any space.

So, we're really starting to see the infrastructure that we built out, our ability to leverage that large infrastructure that we built out many years ago. So, we're down from the 20% to 25% range where we were a year ago or two years ago. I think we're more in that 18% to 20%. Albeit, the first quarter was very strong, but I think we're going to go back to 18% to 20% range.

And on the team hires, we had projected four teams for 2010. And we've hired three thus far. We had gone on record that if we had hired no teams, we still thought we could sustain growth because of all the teams we've hired and the great job the existing teams are doing. But, our pipeline right now is two to three teams. What that means is the pipeline is who we're talking to. We're actually having discussions with two to three teams at the moment.

Thank you very much.

Okay, Terry. Thank you.

Thanks, Terry.

Thank you. Our next question comes from the line of Andy Stapp with B. Riley. Please go ahead.

Good morning.

Hey, Andy.

Good morning, Andy.

Good morning.

I know you said your vision's murky. How [inaudible] is it [inaudible] performers may have peaked?

That's a very good question. I just believe, with our portfolio, that we could have a blip in any one particular quarter. And we've certainly seen that in our past where it's gone up and it's gone down. Could be one loan that we're working out that could be a substantial loan, so in terms of real dollars, it may get higher. In terms of a percentage of loans, and as it relates to our allowance, we're feeling pretty good.

Okay, great. That's all I had. Thank you.

Thanks, Andy.

Thank you. Our next question comes from the line of Tom Alonso with Macquarie. Please go ahead.

Morning, guys.

Tom.

Hey, Tom, good morning.

Just a couple of housekeeping items here. Any non-performing investment securities, or were those part of what was written down?

Well, anything written down, there's still some pieces left. So, we had about 7.5 million in non-performing investment securities. That's down from 8.2 million at--.

--And then any [unintelligible]--.

--Just the same amount--.

--The same--?

--We've had for several quarters now, 700,000.

Okay, great. And then, just if you could sort of comment on your interest-rate sensitivity, if you guys are still--you're poised to benefit if rates start to move up, or how you guys are thinking about that.

Yes. We're still poised to benefit if rates move, especially we're putting on all these core deposit relationships. That's really the key is how core-funded we are, Tom. So, we would expect in a rising interest rate environment that we'll have improved then.

Okay. So, no floors that you have to burn through or anything like that, you get the benefit pretty much right away?

There's certainly some floors that we'll have to burn through. But, there's others that aren't floored. And again, it's really going to depend on our ability to lag on the deposit front. And it's also going to depend on loan demand coming back into the equation.

Okay. And to that point, on loan demand, what do you think kind of shakes people off the sidelines?

I don't know. I mean, I think they're just kind of--we're going to have to continue to see improved conditions in the overall economy. Yes, things are improving and they've improved for several quarters now, but they're improving from modern era lows. So, I don't think anyone is out there overly excited about where the economy's going.

That's why we continue to over-provide at a pretty heavy clip, just because we're not seeing significant improvements in the overall economy, and it's still cloudy out there. So, until we see a few more quarters of sustained growth, I really don't see demand coming back into the equation.

Okay, fair enough. Thanks, guys.

Thanks, Tom.

Thanks, Tom.

Thank you. The next question comes from the line of Ken Usdin with Bank of America Merrill Lynch. Please go ahead.

Good morning, guys. This is actually Kasey filling in for Ken.

Hi. Good morning, Kasey.

Hey, Kasey.

So, regarding the teams hired last year, I know last quarter you guys had mentioned that they had a lot of upside potential. Is that still the case, or are they generating assets and gathering deposits more in line with expectations?

Oh, no. There's still a considerable amount of upside potential, not only for the 2009 teams, but even for the 2008 teams, because some of these teams had fairly significant amount of books of business. And it takes a while to bring them over.

Particularly since they're commercial or business relationships, so when you take into account cash management, you take into account operating accounts, particularly if they're real estate management companies they have to get their clients to sign paperwork and move over. So, it takes months, if not quarters, if not more than a year. So, there's a significant amount of potential for them to continue to bring their business over. We're just starting to bring their business over now.

Okay. So, the deposit growth this quarter, most of it was from teams prior--the minority of it was from teams hired last year.

It was actually across the board, because we hired so many teams last year, 13, and then the year before we hired eight teams. So, when you take that into account, and then you take into account the teams we've hired for 2001, what makes us feel good about the growth is that it actually comes across the board with all the teams.

Okay. Okay, and then the expense guidance of 18% and 20% on the year, does that assume that there's four teams hired?

Yes. That assumes four teams.

Okay. And then--.

--Even if we go higher than that, that will still be in that 18% to 20% range--.

--Okay. Gotcha, and then, finally, did you guys give the watch list credit number?

I don't believe that we did. The watch list went from 132 million to 139 million, so a modest pickup in the watch list.

Okay, great. Thanks, guys.

Kasey.

Thanks, Kasey.

Thank you. The next question comes from the line of Amanda Larsen with Raymond James. Please go ahead.

Hi, guys. Hi, guys.

Hey, Amanda.

Hey, Amanda.

I understand that you're poised to have new expansion in a rising rate environment. But, given the probability that the Fed doesn't commence a tightening policy until 2011, what's your outlook for the [unintelligible] given the different elements going on right now and the fact that you hit that 3.51% record level again this quarter?

Well, we'd expect that we'll be able to maintain in form, then might be down slightly in the next quarter. A lot of it's going to be dependent on our ability to continue to drive down deposit costs. We have some ability to do that, but I really want to stress the word "some" because I certainly don't expect us to be able to take deposit costs down another 9 basis points. That would be a lot. So, but that's going to be one of the key drivers.

Is there going to be any overhang from the agency purchases in the second quarter?

Little bit, but Fannie's still purchasing back. So, we'll have some overhang from that. We're also sitting on quite a bit of cash. So, if we can deploy that cash, that's certainly going to help out, as well. I mean, we're waiting for opportune time to do that.

Okay. Thanks so much.

Thank you, Amanda.

Thanks, Amanda.

Thank you. The next question comes from the line of Jeff Bernstein with AH Lisanti. Please go ahead.

Hi, guys. It's a great quarter you put up. Can you talk about, on the commercial real estate side, the potential for maturity defaults in the market with the heightened level of activity that went on in '05, '06, etc. and where there's opportunity there for you, or risk, and how you think that might play out?

Well, for us, more than 85% of the commercial real estate that we've put on our books was actually originated in '08 and '09. So, we feel very comfortable with our portfolio, because we don't have much in [divestitures] prior to that. And most of what we've put on, in fact more than 85% of it were refinances from the teams bringing their books of business over and just refinancing once the maturities occurred in '08 and '09 from their existing books.

What gives us some excitement is, because of some of the issues prior to that that our clients are in pretty good position, because they have some cash on the sideline. We can see it within our institution that they could take advantage of buying the discounted paper. And with that cash, the loan-to-value for us would be very good. One of the things we stress though is that we lend on current cash flowing multi-tenanted properties, and that certainly creates less of a risk for us.

That's great. Thanks.

Okay. Thank you.

Thank you. (Operator Instructions). Our next question comes from the line of Peyton Green with Sterne, Agee. Please go ahead.

Yes. I was just wondering. I think you referenced this earlier. But, the Freddie Mac securities issue clipped about 600,000 from net interest income in the first quarter?

That's right.

And what was the guidance on the Fannie part, going forward?

Going to be about the same in the second quarter, Peyton.

Okay. Okay, and then, in terms of the money market cost of funds, I mean, with short-term rates staying low for some period of time, do you think there's ability to kind of walk those down over the next couple quarters?

Right now, yes, we were at 1.62 in the fourth quarter and now we're at 1.47. So, it came down 15 bps. We're actually going through a process right now of trying to take into account the current environment. But, we don't want to risk the relationship pricing, because relationship pricing is based upon the total client relationship, and that includes the DDA that they keep. So, I think Eric may have mentioned this. We feel that there may be some, and we'll stress the word "some", downward movement on it.

But, not nearly as much as the downward movement that we saw in the first quarter for the money market decline in interest rates. The pressure [unintelligible] and the pressure's going to be our ability to deploy the excess cash and moving the loan growth along quicker.

Okay. And then, just a follow-up, I mean, would you expect, and I've forgotten that there's a little bit of seasonality between the fourth and the first, but would you expect the non-interest bearing to start growing a little bit better going forward than it did in the first, where it was really kind of flat?

Well, you know what? It was high in the fourth quarter because some of it was the short-term escrows. So, the--.

--Okay--.

--Expectation--we always have the expectation it'll grow, Peyton. And I think what we're seeing is our hope will be fulfilled in the next quarters because the clients that are coming over usually move their interest bearing before they move their non-interest bearing, because their non-interest bearing are the operating accounts that have a number of services tied to it.

So, the expectation is that they will bring over that non-interest bearing. So, we may have to keep--and the problem is this. You bring over the money market account, and you bring it over at a level that you expect the DDA's going to come. And you hope when the DDA comes, that reduces your cost of funds.

But, when you're bringing the new clients over first, they're not going to come over if you say to them, "Well, you have to be at a reduced money market rate until you bring your DDA." We're the ones that have to take the risk of waiting for them to bring the DDA over. So, that's why we think there'll be some downward movement on the cost of deposits, because we're expecting some of the DDA to now come over.

Okay. And then, what was the on-balance sheet escrows at the end of the first quarter?

On-balance sheet escrows at 3/31 were--.

--460 million--.

--Four, yes.

Okay. Okay, great. Thank you.

Thank you.

Thank you. (Operator Instructions). And Mr. DePaolo, there are no further questions in the queue. Please proceed.

Thank you for joining us today. We certainly appreciate your interest in Signature Bank. And as always, we look forward to keeping you apprised of all our developments. And Luke, I'll turn it back to you. Thank you.

Ladies and gentlemen, this concludes the Signature Bank fiscal 2010 first quarter results conference call. If you'd like to listen to a replay of today's conference, please dial 303-590-3030 or 800-406-7325 with the access code 4284828. Or you may log in to www.signaturebank.ny.--I apologize. www.signatureny.com. ACT would like to thank you for your participation. You may now disconnect.